The Outlook for House Prices?

We created WhichWayHomes.com in 2006. The entire globe was swept up in a property boom fostered by an expanding supply of credit. Back then we were among a tiny number of publications warning of a credit crisis, a 60% stock market dislocation, plummeting interest rates, major blue-chip bankruptcies and crucially, a 35% real estate crash. We were right.

A decade of investment excellence enabled us to explain, in advance, how these events would unfold, and we proceeded to document the capitulations in real time between 2007 and 2009. Real estate prices in the U.S. did indeed collapse 33%, while prices in the U.K. fell 21%.

What Next for House Prices? (Last updated Jan 2012)

United States

The 33% fall in real estate prices brought property prices back down to earth. While price movements have varied significantly between different regions of the U.S., on an overall basis the value of real estate is now reasonable. This is especially true since interest rates on 30 year fixed mortgages plumb historic lows. While we see rising interest rates ahead, the availability of long-term, fixed rate mortgages makes investment in U.S. real estate moderately compelling.

United Kingdom

Our outlook for U.K. house prices is markedly different since U.K. house prices are still overvalued by any conventional measure. House prices did not collapse as much as they did in the U.S. since a greater number of homeowners are on variable rate mortgages, the cost of which fell as interest rates declined. However, we foresee three decades of rising interest rates ahead. The high proportion of homeowners on variable rate mortgages, and the lack of long-term, fixed rate products, makes the U.K. housing market susceptible to ongoing price weakness, and potentially a sharp, downward price correction as interest rates rise. Caution!